Ireland is heading into a second arrears crisis as a significant number of people availing of payment breaks will be in no position to restart paying their mortgages this autumn, leading financial services experts have warned.
Irish lenders struck agreements with the Central Bank and the Government -- which owns significant stakes in the Irish banks -- to extend an initial three-month payment break to six months as the Covid-19 economic crisis unfolded.
The second-round of payment breaks end in September meaning that home loan borrowers who fail to resume paying the full monthly repayments in October will likely enter into an arrears process with their lender.
Leading mortgage broker and debt adviser Michael Dowling, who has held senior positions on industry bodies, estimates that about 30,000 households -- or around half of the 62,480 currently on home loan payment breaks -- will fail to restart paying in October because they will not be back in work or because their pay has been cut during the crisis.
“My one sense is at least 30,000 households will drop into the arrears process,” Mr Dowling said. “People will go back to work and will be in a position to resume their payments, but there will be a significant number who will not be back at work for some time,” he said. “I think there will be a significant number of customers who will fall into the lenders’ mortgage arrears process,” he said.
Mr Dowling said the new arrears cases will add to the running sore of the households who are still in arrears since the financial crisis of over 10 years ago, and he urged finding better ways to deal with people in financial stress than inflicted on households in the previous crisis.
“We are back into that horrible cycle,” he said. “We do not want to go back to the days of whether a distressed borrower can have Sky Sports or not and the whole moral hazard debate. We have to recognise that this will be long term and imposing a rigid repayment on a borrower will not work. It is important not to go back to the old ways,” he warned.
Central Bank figures published last month showed that over 26,400 home loans were in long-term arrears, a legacy of the last financial crisis. Over half of those mortgages in arrears of over two years were owned by “non-bank entities” or the so-called vulture funds, after the controversial sales of non-performing mortgages by Irish lenders.
“There are many households who are in long term arrears from the previous crisis which hasn’t even been resolved and we could have the same number again who will be in the process and who will require longer-term support than just the six months,” Mr Dowling said.
Padraic Kissane, the financial adviser who represents consumers on the Irish Banking Culture Board, said that “a significant number” of people will face difficulties in paying their mortgages in October.
He said new groups of people will need some sort of payment breaks if they lose their jobs in the coming months, warning that few understood the scale of the potential economic crisis. The number of people falling into arrears will be closely linked to whether there is a second wave of the pandemic as the economy opens up, he said.